Social Policy and Inequality.

We document the economic, demographic, and social policy forces underlying changes in income inequality among single mother families over the past twenty-seven years in the United States. Using data from the 1980–2006 waves of the March Current Population Survey, we construct additively decomposable measures of after-tax
income-to-needs inequality into the major income factors of earnings, transfers, other income, and taxes, and also into within- and between-group inequality based on employment status, education attainment, age, past marital status, and race. Our results indicate that income-to-needs inequality rose nearly 50 percent between 1980 and 2006. Employing Quandt-Andrews tests of unknown change point we identify a trend break toward higher inequality centered in 1994 just as major tax and welfare reform policies, and a business-cycle expansion were taking hold nationally. The post 1994 rise in inequality is driven by a 75 percent increase in the cross-sectional variance of income accruing in large part to strong income growth in the upper half of the distribution. A decomposition focusing on the components of total income indicates that the rise in income inequality among single mothers is driven by higher earnings inequality, and that most of the change in inequality is occurring within demographic groups in part because of large, offsetting between-group changes in population shares and relative incomes.